Chailease Holding Company Ltd
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Chailease Holding Company Ltd
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Welcome to Chailease Second Quarter 2021 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. And for your information, a webcast replay be available within an hour after the conference ends.
Now I would like to turn the call over to Mr. Vic Wang, Senior Manager of Investor Relations. Mr. Wang, please go ahead.
Thank you. Hi, good evening, everyone. I would like to welcome everyone to Chailease Holding Second Quarter 2021 Earnings Conference Call. With me this evening is Mr. Sharon Fan, Head of IR, and she will open to your questions in Q&A period. I will walk you through this quarter's earnings presentation, which is available for download on our corporate website under the IR question.
As a reminder, please refer to the disclaimer regarding forward-looking statements at the front of the presentation.
The agenda we are going to cover for today on Slide 3 includes management highlights, second quarter 2021 consolidated performance review, followed by the segment review for our Taiwan, China and ASEAN operation.
Without further ado, I would like to start the presentation from Slide 4. Highlights, overall, of our second quarter 2021 operation results. First, the summary table here shows the loan portfolio growth for the quarter. On a year-over-year basis, Taiwan, China and ASEAN loan portfolio grew 19%, 22% and 13%, respectively. On the consolidated level, we achieved 19% year-over-year loan portfolio growth. And for the year to second quarter portfolio growth, Taiwan increased 9%, China increased 1%, ASEAN increased 6% and 6% growth on a consolidated basis. We expect consolidated loan portfolio continue to grow in line with the yearly guidance.
Second, overall asset quality remained stable with slightly decreased delinquency ratio in each major operation. In terms of the new delinquent amount for the quarter, we also remain at a healthy level.
Third, the reason our Taiwan subsidiary issued the first green bond of TWD 4.2 billion to support the growth of Solar business and related green process. We also reflect the company's commitment to ESG and sustainability.
Let's move to the next session, second quarter 2021 performance review. Moving on to Slide 6. Consolidated loan portfolio reached TWD 509 billion second quarter in 2021, with 19% year-over-year growth and 6% year-to-date increase as the business momentum continued for the quarter.
The next slide, Slide 7, shows you the trend of consolidated average loan yield and cost of funds for the past 3 years. You can see we maintained relatively stable interest rate with slightly increased loan yield in recent quarters. We will discuss the change of each operation region in the next section.
Next slide, Slide 8. On the left-hand side, the consolidated revenue for the first 6 months of 2021 reached TWD 34.5 billion, representing 22% growth compared to the same period last year. On the right-hand side, second quarter 2021 consolidated revenue increased 6% from the previous quarter. Taiwan revenue increased 8% sequentially.
Moving on to Slide 9. On the left-hand side, the consolidated net profit for the first 6 months of 2021 totaled TWD 10.5 billion, and earnings per share was TWD 7.11. The EPS already reflects the resulting preferred share of dividends in June. The higher net profit growth was mainly driven by less expected credit loss was booked in China and improved overall cost-to-income ratio. On the right-hand side, second quarter consolidated net profit was up 11% quarter over quarter as Taiwan net profit was up 16% for the quarter.
Turning to Slide 10. This slide show you our loan portfolio mix and profit contribution in terms of operating region. On the left-hand side, you can see Taiwan business still accounts for 49% of group's total loan portfolio, China is about 36% and ASEAN slightly decreased to 14% at second quarter end 2021. On the right-hand side, Taiwan net profit contribution accounts for 46% and China increased to 48%, ASEAN contributes 5% to the consolidated net profit.
Moving on to Slide 11. The chart on the left-hand side, cost-to-income ratio improved 25% for the first 6 months of 2021 due to greater improvement in operational efficiency. The chart on the right-hand side, asset to equity slightly increased to 6.2x for the quarter.
Slide 12. The consolidated ROA on an annualized basis was 3.5% for second quarter 2021, increased from 3.2% in 2020 due to better profitability. The consolidated ROE on the right-hand side was 25% for the quarter. The calculation for ROE excludes preferred shares.
Next slide, Slide 13. The consolidated delinquency ratio, on the left-hand side, at the second quarter end 2021 was slightly decreased to 2.3%. Later in the presentation, I will talk about each region in more detail.
Moving to the right-hand side, allowance to loan portfolio ratio also slightly down to 2.4% compared to previous quarters.
Moving on to the segment review. Let's look at our operation performance region by region. On Slide 15, Taiwan loan portfolio reached TWD 251 billion in second quarter end 2021, representing 19% year-over-year increase and year-to-date was up 9%. The new disbursement for micro financing, used car financing and lending in construction machines remained a growth driver for the quarter. We expect Taiwan loan portfolio will meet high end of our yearly target.
Slide 16. This slide shows the change of Taiwan Solar assets. Taiwan Solar net asset reached TWD 33 billion at second quarter end 2021, representing 23% year-over-year increase and year-to-date was up 8%. The Solar asset accounts around 9% of Taiwan total assets.
Next slide, Slide 17. This page presents trends of our Taiwan loan yield and funding costs. In recent quarters, the loan yield slightly increased as we grew more in micro financing and car financing. The greater improvement cost of fund was mainly due to Taiwan low interest environment and improved company credit profile.
Moving on to Slide 18. Revenue for our Taiwan operation for the first 6 months of 2021 reached TWD 17.2 billion, representing 20% year-over-year growth. The Solar revenue accounts 13% of Taiwan revenue for the first 2 quarters 2021. For the quarter-over-quarter comparison on the right-hand side, second quarter revenue grew by 8% as more Solar income was booked in second quarter.
Turning to next slide, Slide 19. Taiwan's profit for the first 6 months of 2021 grew by 29% compared to the same period last year. Higher bottom line growth reflects improved cost-to-income ratio for the quarter. The second quarter Taiwan net profit grew by 16% quarter-over-quarter, but expected credit loss remained flat.
On Slide 20, on the left-hand side, Taiwan delinquency ratio at second quarter 2021 was slightly down 0.2 percentage points to 2.3%, mainly driven by better recovery from the delinquency for the quarter.
Next slide, Slide 21. Allowance to loan portfolio for Taiwan maintained at 2.0% this quarter.
Next, China operation on Slide 22. China total loan and receivables reached TWD 181 billion in second quarter in 2021, which grew by 22% year-over-year and 1% increase year-to-date. For China, second quarter gradually resumed the business momentum compared to prior quarter, and we expect China loan portfolio growth will mid 15% to 20% yearly guidance.
Turning to Slide 23. This page shows the 1 year and cost of funds trend for our China operation. We continued to maintain stable spread over the quarter.
Next slide, Slide 24. China revenue for the first 6 months of 2021 totaled TWD 13.3 billion, increased 27%. The sequential increase of top line growth on the right-hand side was driven by better growth of fee income.
Moving on to Slide 25. China for the first 6 months of 2021, net profit reached TWD 6.2 billion, increased by 49%. The higher growth compared to top line was mainly driven by less expected credit loss and improved cost-to-income ratio this year. On the right-hand side, China's second quarter 2021 net profit was up 3%.
Turning to the next slide, Slide 26. On the left-hand side, China delinquency ratio at second quarter was down 0.1 percentage point to 1.8% compared to prior quarter, which decreased new delinquent amount for the quarter. On the right-hand side, write-off amount decreased for the quarter compared to the prior 2 quarters.
Next slide, Slide 27. China's allowance to portfolio ratio for the second quarter of 2021 was maintained at 2.7%. We expect this ratio will remain stable.
Moving to ASEAN on Slide 28. The ASEAN total loan and receivables at second quarter end 2021 reached TWD 72 billion, up 13% year-over-year and 6% increase year-to-date. Vietnam and Malaysia remained the main growth driver for ASEAN.
Moving to the next slide, Slide 29. The left-hand side, ASEAN's revenue for first 2 quarters of 2021 totaled TWD 3.8 billion, grew 17% compared to the same period last year. On the right-hand side, ASEAN's second quarter revenue was up 5% sequentially.
Moving to Slide 30. ASEAN's first 6 months 2021 net profit reached TWD 1 billion, increased by 55% due to improved cost-to-income ratio and less interest expense this year. On the right-hand side, ASEAN's second quarter 2021 net profit was also up 6% sequentially.
The last slide, Slide 31, on the left-hand side. ASEAN delinquency ratio in second quarter slightly decreased 0.3 percentage points to 3.3% compared to 3.6% in first quarter 2021 mainly due to improvement for Thailand operation. On the right-hand side, ASEAN's allowance to portfolio ratio for the second quarter 2021 was 3.4%.
And this also bring us to the end of my presentation. Now I would like to turn the call to operator to open the line to questions. Operator?
[Operator Instructions] The first to ask questions, JPMorgan, Jemmy Huang.
Three questions from me. First one is, I think in terms of the lending yield in Taiwan, based on what you have observed the business flow, should we expect the lending yield could further trend up in the coming quarters?
Second question is on China. I think the portfolio growth in the first half this year is a little bit weaker than the normal seasonality. So if we try to quantify the reasons, what would be the key factors behind? And then which areas that we are confident to see the portfolio growth will be picked up significantly in the second half to meet our full year target?
And the third question is on cost income ratio. I think how should we read through this continued decline on the cost-income ratio, whether it will be -- it is driven by better productivity or better cost control, et cetera, because we need to assess what we will see further improvement on the cost-income ratio...
Okay. The first question about our Taiwan yield has continued to have some improved increase for the past couple of quarters. I think the major reason is the product mix change. As we talk about in the China -- in the Mandarin session about the result call that because in the recent years, the major growth driver from our Taiwan operation comes from those like consumer used car, financing, micro business and Solar business.
So for that part, actually, we have a higher yield. But I think if we continue to generate higher growth for those new higher yield business segment, I think this yield increase will be a continuous trend. But I think it will be a gradually kind of process.
And the second question about the China first half, the portfolio growth seems a little bit weaker than before. I think, as you know, usually our second half, the business momentum will be much stronger compared to the first half. And this year also because as you know, there is still some on and off of the COVID impact from some cities globally.
So in China, in the first 2 quarters, we still face some disturbance because of this impact. So for some of our branch, the business activity actually has slightly impacted. But as management guided in our previous lending session, I think we're still confident that we can achieve our full year plan -- full year growth target, which is like 15% to 20% of the portfolio growth. I think we will see the great -- especially, I think, as you know, in China, the COVID situation has been controlled quite well and also in Taiwan, the same. So management still think that we can gradually, like, catch up the business activity in the second half, and we still try to achieve our full year growth target in China.
And the third question about the cost-to-income ratio continue to improve from like last year is about 29% to current quarter is like 25%. I think there are several areas that -- it's a combination of several factors to achieve this very good result. I think productivity enhancement is one of the reasons. And also I think from 2 major areas that we can look at: one is that because we have slightly expansion of the spread, so that gross profit actually grew faster; and the other factor is that we continue to have a quite good OpEx control, especially the headcount-related expenses maintained at quite good level. And I think altogether make us to achieve this very good 25% of the cost-to-income ratio.
As our CEO discussed in the previous session, I think we will continue to drive our productivity. And hopefully, we can continue this -- to maintain this good cost-to-income ratio. And whether you will continue to have further improvement? I think yes, we have some improvement, this will be a gradual process and -- as it -- we want to maintain roughly this good performance level going forward.
[Operator Instructions] Next to ask the question, Gurpreet Sahi from Goldman Sachs.
Can I ask regarding the spread in China. It seems that, that is also widening, especially over the last 1 year, especially loan yield. So why is that? That's the first question.
And second question is a follow-up on Taiwan. Can you talk to us regarding how much is the consumer and micro financing business mix within the total portfolio in Taiwan? And how fast that part of the overall business is growing and also what kind of spread you can get there?
And then final question is regarding the disclosure of top 5 segment in Slide 37. So we see that shipping has gone down in Taiwan as an exposure. And then some wholesale durable goods have come up. Can you talk about what you are seeing as trends in terms of demand from different kind of sectors within Taiwan?
Okay. The first question about the China spread. Actually, we still think this kind of spread range, it's still with -- the valuation is still within our plan and because we didn't change our pricing strategy in China actually and our funding cost also became quite stable. I think in China, because we don't have a similar development like the product mix change in Taiwan. So we still think in China, we will maintain -- to maintain a stable spread will be our continuous target.
And regarding the Taiwan business mix, I think the micro business account for 7% of the Taiwan total business volume and consumer related with the -- probably -- if we including the used car financing, probably it will be around 20%, yes. And for the micro business, the yield is much higher, like 14 -- around 14%, versus is about 10% we charge. So the pricing is higher, much higher, yes.
And the third question about the industry exposure, about shipping, we do some -- we categorize about the industry for Taiwan because I think actually shipping is increasing from 6.4% in year 2019 to 8.6% in 2020. So what's your question about the...
Sorry, my bad, my bad on that exposure. So that is fine. I think maybe there was more demand regarding the expected pickup last year. But going back to -- can I have a follow-up on the Taiwan consumer micros, you said 7 and 20. Should we add these numbers, so your overall exposure in this high growth and relatively new area is around 27% or is that 20% counting everything?
20 is for -- yes, for the consumer, it's mainly our used car financing, probably accounts for 80%. Yes, the other will be -- not the majority, majority still comes from the used car financing.
Okay. And then even Solar is higher spread -- sorry, higher yield compared to the overall Taiwan portfolio. Is it?
Sorry, because Solar right now is not in the portfolio, now is in the fixed assets. So it will impact the yield line.
Next one to ask question is Brooksley Kang, Bank of America Securities.
Sharon. So I have 3 questions. First is on the delinquency ratio in China. I think 1.8% is one of the best in historical context. But this number, is this better or well within the company's previous expectation? And what's the range to think about delinquency ratio in normal cycle in China based on your experience?
Second question is on consumer finance. Okay, you can firstly answer the first question, and I will follow up on the second one.
Okay. Regarding the China delinquency ratio, I think after more than 10 years operating experience, we continue to develop in China. I think we have been establishing quite good risk management mechanism. And right now, I think the asset quality or the credit cost level already reached similar level to our traditional SME business in Taiwan.
So actually, the Taiwan average delinquency ratio is like 2.3%. But because we have the other business -- I mean, the other product offerings in addition to like SME leasing. For the pure SME leasing, actually, the credit cost [ amount ] to about 1%. So I think in China, we have continued to catch the good level -- the same performance level as we have in Taiwan now. So -- and also in China, because the market is very big, and we believe we can continue to generate some of the benefit from the economy scale. And I think probably going forward, if there is no some like extraordinary events, actually, for this SME manufacturing equipment leasing business, probably in China, we can maintain around this level about the delinquency ratio.
Can I clarify? I may have heard it wrong. Did you mention that our traditional SME leasing business in Taiwan, the delinquency ratio is around 1%?
It's about 2% to 3%. Yes, in the past...
2% to 3%...
As for the branded -- actually traditional asset is low, yes.
Okay, lower. And I have another question. It's more of the long term because the Mandarin session mentioned that we are planning to bring our consumer finance buy now/pay later, the business model in Taiwan to move to ASEAN in the future. So, so far, do we have any understanding on the retail customers we have in ASEAN markets?
Not yet because, as you know, in ASEAN, mostly we offer the consumer used car financing in Malaysia market. And I think that's quite similar. It's more addressed the consumer different from the other overseas [indiscernible] Vietnam or Thailand.
So I think we will continue to build up our know-how and our experience here in Taiwan for this used car business kind of like [ after ] pay, that kind of new payment tool that will continue. We will also try to leverage our experience here and introduce to the other ASEAN market. But it's still in the very early stage. So we will keep you updated when we have more data points.
[Operator Instructions] Right now, we have Gurpreet Sahi, Goldman Sachs, Hong Kong.
A follow-up on the loan target, I heard China 15% to 20% a couple of times, but Taiwan or overall at the group level, can you please give some guidance on the portfolio growth target for this year?
Okay. In the -- earlier this year, the management has been guided for like 10% to 15% of the growth for the consolidated level and also 10% to 15% for Taiwan and 15% to 20% for China. So if we look at the first half result, probably we can see in Taiwan, we are very likely to achieve at the high end of this range of the target, yes.
[Operator Instructions] Now we have Gurpreet Sahi from Goldman Sachs, Hong Kong.
Yes, sorry, Sharon, following up. The leverage is 6.2% now, and then you had this rights -- sorry, not the right, the scrip issue for dividend. So I think that will help with reducing the leverage. Can you roughly give us an indication of how much pro forma because is it not yet there in the June end and that will help?
And then the other question linked to this is when the leverage or assets to equity was just above 7%, I remember management has that discipline, so the group did preferred capital share raising last year. So now with 6.2% and whatever this ratio goes lower with the scrip, how much of a headroom do you have with this kind of growth, the management thinks, how many years? Is it 2 years? Is it 4 years?
Okay. I think this is point to leverage actually includes our preferred share as equity. And we still remain the same principle, if we -- if this leverage reached to around 7x, we will start to plan for another one of the equity fundraising plan. And with the current business plan, probably the current leverage ratio still -- we can still support us for another 1 to 2 years, 1.5 years to 2 years of the growth, yes.
Okay. So just checking that the scrip -- that the dividend was declared, part of it was in scrip so that has already been counted in this because that scrip means added to equity, right? So for investors who choose the noncash option?
Because the stock dividend is very small, so it won't impact too much.
[Operator Instructions] There seems to be no more further -- no further questions at this point.
We can end the call, please.
Yes. Thank you, Vic. Ladies and gentlemen, we thank you for your participation in Chailease's conference. You may now disconnect. Thank you, and goodbye.